India: SEPs and FRAND – litigation, policy and latest developments
This is an Insight article, written by a selected partner as part of IAM's co-published content. Read more on Insight
Standard essential patents (SEPs) protect technologies that are essential in complying with a standard. A standard on the other hand, provides a set of rules, guidelines or characteristics for material, products, processes and services to interoperate. In the field of telecommunications, a standard also creates a common language so that two devices can connect.
To avoid licensing problems and to ensure access to SEPs for the wide adoption of standards, standard setting organisations (SSOs) created the concept of FRAND, following a requirement for licensing SEPs on fair terms to SSO members and non-members who use the standard. FRAND stands for fair, reasonable and non-discriminatory licensing terms and values. It aims at creating the right balance between the interests of technology users and providers.
The FRAND value is meant to be reasonable and make the business of the implementer sustainable; it also compensates the technology provider for investing in R&D activities and inventing new technological developments. Currently, there are no regulations or statutes on imposing FRAND obligations in India.
SEP litigation in India
India witnessed a spate of lawsuits on infringement of SEPs a few years ago that coincided with the rise in local mobile device manufacturers. The local mobile device manufacturers dominated a substantial share of the market in India, giving rise to several litigations between SEP holders and manufacturers who implemented those standards in their devices. Such litigations were claimed to be an inevitable consequence of long-drawn negotiations on licensing terms and FRAND rates that failed to fructify between the SEP holders and local implementers. The patent holders, namely Ericsson, Vringo and Dolby filed suits against infringement of their SEPs by local manufacturers such as Micromax, Intex and iBall. They also filed suits against Chinese mobile device manufacturers Xiaomi and OPPO. All these suits were filed in the High Court of Delhi, the most preferred forum in India for patent matters.
The mobile device manufacturers were immediately restrained from manufacturing and selling the products that were alleged to be infringing the SEPs. A few months later, however, the implementers were allowed to sell their products during the pendency of the suits on the condition of payment of royalties to the SEP holders based on an interim arrangement determined by the court.
India’s first ever SEP decision was issued in two joined (identical) disputes, Koninklijke Philips Electronics v Rajesh Bansal and Koninklijke Philips v Bhagirathi Electronics by the High Court of Delhi in July 2018. The defendants were the importers and assemblers of DVD players in India. The plaintiff in these matters, Philips, filed patent infringement cases against both, claiming that the defendants had imported DVD player components that were manufactured using its patented technology and had then assembled them in India without obtaining licences. The patent in question covers the Channel (De)coding technology responsible for video playback function in the DVD player. The implementers argued that they had not infringed the Philips patent as they had acquired the components from authorised licensees of Philips. The High Court of Delhi ruled in favour of Philips and, following the principles laid down by the United States Court of Appeals for the Federal Circuit in Commonwealth Scientific and Industrial Research Organisation v Cisco Systems Inc, fixed royalty charges based on comparable licences.
Later, in a series of proceedings initiated by Ericsson against Micromax, Xiaomi and Intex alleging infringement of its patents essential to the 2G and 3G standards, the High Court of Delhi dealt with issues pertaining to SEPs and their availability on FRAND terms. An important SEP decision in India, InterDigital v Xiaomi, was released in early May 2021, relating to litigation occurring in different countries.
FRAND licensing in India
There are no SEP policies or guidelines in India apart from the decisions in the above-mentioned suits. Even though those were interim decisions, they have paved a way for determining FRAND licensing terms. Earlier, in the absence of decisions, policies or guidelines, there had been no clarity on licensing of SEPs and determination of FRAND rates in India and perhaps that could have been the reason for the failure of earlier negotiations. To date, the suits filed by the SEPs have not given an opportunity to the court to provide definitive guidelines on FRAND rates and licensing of SEPs, as most of these suits have settled before the trial could take place. However, the factors considered by the High Court of Delhi in determining the royalty to be paid to SEP holders, while allowing the local implementers to continue sale of their products at the interim stage, give a direction on how jurisprudence could develop on SEPs and FRAND rates in India.
The High Court of Delhi relied on comparable licences in all the above cases to derive FRAND rates during the interim arrangement that brought the royalty rates closer to the real-world market valuations of asserted SEPs. The court also used the price of the entire licensed device rather than of components within the device as the base for determining royalty rates. The method of determining FRAND rates based on the value of comparable licences, as used by the High Court of Delhi, has been recognised by US courts as well. This approach does not lose the character of a commercial transaction in which the prices are settled by market forces rather than by regulatory bodies.
The local implementers, however, filed a complaint with the Competition Commission of India (CCI). The initial view taken by CCI deviated from the observations made by the High Court of Delhi at the interim stage. CCI appeared to favour using the smallest saleable component within the licensed device to determine royalty rate and found the royalty rates of SEP holders exorbitant. CCI found a prima facie case of exploitation of dominant position by SEP holders and has initiated an investigation against them.
With the country being an important and attractive market for the wireless communication industry as well as for manufacturers and design centres, it is essential to see how India chooses to shape its policies on FRAND licensing, which will not only play an important role in developing India’s jurisprudence on the issue of SEP and FRAND licensing, but will further determine India’s future in the global value chain towards innovation.